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Wednesday, 29 April 2015

The Magnificent Seven

The low in October was a very important technical low on all equity indices, and one of my daily optic run folders shows all of the patterns formed on my main group of these since that October low. I know that there are many wondering why I think that a significant high is imminent, and hopefully this will shed some light on this for them. Am I right? Well there's only one way to find out for sure, time will tell as always.

It has been obvious to me for years that there is a lot of crossover between my classical work and Elliot Wave (EW). EW has taken  a reputational beating from the forecasting antics of Prechter's Elliot Wave International over the last decade, but I follow or work with several outstanding EWers who don't work for the EWI clown show, and there's no doubt in my mind that EW is a very powerful, though complex and tricky tool. For the sake of clarity and simplicity I'll explain the chart below from an EW perspective.

From an EW perspective I have the October low as the wave 4 low of the primary three wave up from October 2011, and as with many wave threes it has been a doozy. Wave 5s often form rising wedges, known as ending diagonals in this context, and on the first six of the seven charts below clear rising wedges have formed since the October low.

Three of these rising wedges have seen daily closes under rising wedge support in recent weeks. SPX is one of those and NDX and WLSH are the other two. This puts these three, and most likely all of these indices into topping processes at the moment. SPX daily chart:
Dow has been particularly weak relative to most, and has pinocchioed wedge support four times, closing back above the trendline on each occasion. When we do see a daily close below wedge support that should be a good signal that the topping process is ending or ended. My upside target here is a retest of the 18288 high to make the second high of a double top. INDU daily chart:
The Wilshire 5000 is the broadest US index and again has a very nicely formed rising wedge showing obvious signs of weakness. WLSH daily chart:
Another clear rising wedge showing signs of weakness on NDX, though for clear trendlines I prefer the broad Nasdaq index COMPQ. NDX daily chart:
On COMPQ there is a very clear and currently unbroken rising wedge. COMPQ daily chart:
I was saying yesterday morning that I was looking for a hit of rising wedge support on RUT yesterday and there was a perfect wedge support hit at the low. Assuming that holds I'm now ideally looking for a hit of wedge resistance in the 1290-1300 area. RUT daily chart:
TRAN spends a lot of time in a parallel universe and so spends long periods not correlating much with the other indices. At the moment TRAN made the last all time high in November, against the end of February on Dow. This means that there is a bearish Dow Theory non-confirmation at the moment that will last until TRAN makes a new all time high. That should persist through this spring high and the subsequent correction. In pattern terms TRAN has been forming a descending triangle since December and these, as with rising wedges, break down about 70% of the time. I have TRAN in a short term rising megaphone which I am watching carefully, and I'm thinking TRAN might just manage another touch of triangle resistance in the 9120 area, depending on when that small megaphone breaks down. TRAN daily chart:
I wasn't entirely happy with the low yesterday, as it didn't reach my SPX channel support, though it did retest the daily middle band slightly above, and tested rising wedge support on RUT. I'm giving the low a provisional pass as long as SPX can hold the 50 hour MA, which closed yesterday in the 2108 area, equivalent to 2102 area on ES. With ES at 2096 at the time of writing that's a maybe for today. If SPX opens well under the 50 hour MA then we may well see another decline to finish the job, and my SPX rising channel support is now in the 2086 area (about 2080 ES).

I'll round up with a few other instruments. GC has been very choppy this week, but I am still leaning towards at least a test of the 1142 low as long as the last significant high at 1224.5 isn't broken

ZB has been declining as expected and is getting close to the initial target zone I gave on ZB in the 158 area. I'll be looking again at bonds today for the decline structure, though bonds have been very choppy the last few weeks.

CL is in a big inflection point where it can break up over 58/9 towards my target in the 66-8 area, or break below 53.5 to resume the downtrend. break. I'd like to see the higher target made but technically don't have a strong lean here.

I posted a DX (USD) chart on twitter last night with a strong bullish bias. The falling wedge I showed is breaking down at the moment and I'm expecting this to be a bullish underthrow. I might be mistaken of course.

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